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With no specific announcement in the budget of 8th March 2017 it appears the Chancellor will not reduce the imminent business rates hike which could mean business rate increases on roof top Solar PV Installations (“Solar Installations”) of as much as 800% for business organisations that generate their own electricity from their own Solar Installations.

The re-evaluation of business rates for self-owned Solar Installations which will come into force on 1st April 2017 is based on assumptions about capital costs of installation and not in relation to the revenue generated by the Solar Installations. In some circumstances the cost saving from electricity generated and receipt of subsidy support will not be enough to offset the original cost of installation, maintenance and the substantial increase in tax with the possibility of a negative or substantially reduced return for the business owner.

Due to the quirks in the valuation methodology those Solar Installations where electricity is generated mainly for export to a third party, for example where a third party owns the Solar Installations and sells the electricity to tenants, then the valuation and the resultant business rates liability will not be so problematical.

However, for the thousands of self-owned Solar Installations, the business rates payable on the Solar Installations could increase by as much as 600 to 800%. Thousands of schools, small and large businesses and industries that own their own Solar Installations and generate electricity for their own consumption may be detrimentally affected.

What’s the remedy

Other than a government change of heart and intervention, businesses may be able to configure their Solar Installations so that a Special Purpose Vehicle (“SPV”) is incorporated as a separate legal entity to control the Solar Installations thereby setting the third-party methodology in place to optimise the tax position. The costs of setting up the SPV legal structure will need to be weighed against the potential tax savings to determine whether the SPV structure is a prudent remedy for your business.

This article has been prepared by Stuart Bechares, an Associate Solicitor with Acuity Legal working within the Sustainability and Renewable Energy sector team.

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